Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q2B

Expert-verified
Essentials Of Investments
Found in: Page 588
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

The current level of the S&P 500 is 1,200. The dividend yield on the S&P 500 is 2%. The risk-free interest rate is 1%. What should a futures contract with a one-year maturity be selling for?

Answer

$1,188

See the step by step solution

Step by Step Solution

Step 1: Given Value

Current Price (S0) = $1,200

Risk-free rate () = 1%

Dividend yield (D) =2%

Time (T) = 1 Year

Step 2: Calculation of future’s contract with one year maturity

Future’s price = (1 + – D)T

= $1,200 x (1 + 0.01 – 0.02)1

= $1,188

Most popular questions for Business-studies Textbooks

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.